American Airlines Used Bully Tactics, U.s. Says

May 14, 1999|By John Schmeltzer, Tribune Staff Writer.

The Justice Department sued American Airlines on Thursday, accusing the carrier of deliberately driving low-cost carriers from Dallas-Ft. Worth International Airport, and said it is investigating other major airlines for similar monopolistic practices.

In a lawsuit filed in Wichita, Kan., the department charged that the nation's No. 2 airline slashed prices and increased flights and seats in the mid-1990s, even if it meant losing money, to prevent three start-up airlines from establishing a toehold at the nation's third-biggest airport.

"It is the public who loses out when major airlines succeed in driving out low-cost competitors," Atty. Gen. Janet Reno told a Washington news conference. "Consumers shouldn't have to pay sky-high prices because one airline is trying to keep out low-cost competitors."

The lawsuit is the first accusing an airline of using predatory pricing to block discount entrants since the industry was largely deregulated during the Jimmy Carter administration in the late 1970s.

And it is one of several that many in the airline industry expect will be filed against big airlines as investigations the federal government began more than two years ago draw to a close.

The investigations started when Denver-based Frontier Airlines accused Elk Grove Township-based United Airlines of trying to bankrupt the start-up carrier by slashing fares and adding flights after it challenged United's dominance at Denver International Airport.

Since then, in addition to the complaints against American, several start-ups have asked the Justice Department to investigate Northwest Airlines for tactics employed at its Minneapolis and Detroit hubs and Delta Air Lines for operations at its Atlanta base.

"We have an ongoing investigation looking at other carriers and we will be continuing to investigate those cases," said Joel Klein, head of the Justice Department's antitrust division, though he refused to named them.

Aaron Gellman, director of Northwestern University's transportation center, suggested, however, that the case against United is as strong as the one filed against American. United also has been accused of predatory tactics in driving Vanguard Airlines out of Des Moines. The Iowa attorney general has joined the Justice Department in investigating those allegations.

But United spokesman Joe Hopkins said, "We're not aware of any ongoing investigation that really involves us."

In its complaint against American, the Justice Department charged that under Robert Crandall--American's now-retired chairman and chief executive who was widely known for his confrontational style--the Ft. Worth-based airline had a policy of doing whatever was necessary to drive low-cost competitors from the sky.

"The short-term cost or impact on revenue can be viewed as the investment necessary to achieve the desired effect on market share," American maintained in documents that the government filed in the U.S. District Court in Wichita.

"If you are not going to get them (low-cost carriers) out, then (there is) no point to diminish profit," the government quoted Crandall as saying in inter-office memorandums to other American executives.

The Justice Department accused American of attempting to drive out of DFW Airport Vanguard and Western Pacific Airlines on routes to Wichita and Kansas City and SunJet International on routes to Long Beach, Calif. Only Vanguard still offers service into Dallas-Ft. Worth. Western Pacific was liquidated last year.

Klein said American crossed a line in the tactics it used against its competitors.

"It operated at a loss for one reason only--to kill off a competitor so that it could then more-than-recoup those short-term losses through monopoly pricing," he said.

But American, in a combative briefing for reporters and in a special Web site created Thursday, flatly denied that its past or current practices are violating the Sherman Antitrust Act.

"The notion that we have monopolized Dallas-Ft. Worth is simply without merit. It doesn't pass the giggle test," said Trey Nicoud, a senior attorney for American.

"Contrary to Justice Department philosophy, this action today is very potentially anti-consumer. It would have a chilling effect upon the marketplace if businesses felt they could not match prices," said Nicoud.

And the airline said it wasn't about to tone down its rhetoric.

"We're not about to make life easier for our competitors," said Chris Chaimes, a spokesman for American. "Tough talk is tough talk. But it is very lawful and there is nothing illegal about it."

The airline, second in size to United, also vowed not to change any of its business practices while the lawsuit is pending.

"Since we have done nothing wrong, we're not sure what we should be doing differently," said Nicoud.

But Joseph Schwieterman, an economist who specializes in airline competition issues, said the Justice Department lawsuit was overdue. "Predation has been a fact of life in the airline industry since deregulation two decades ago," he said.

Sam Addoms, chairman and chief executive of Frontier, agreed:

"This is huge," Addoms said. "This is the first time that the Justice Department has taken up this issue. There have been dozens of charges and countercharges for the past 10 years."

Addoms said he hoped the courts would now establish a clear idea of practices major airlines can employ when competing with start-ups.

Schwieterman, however, said that efforts by the Transportation Department to establish rules of conduct still are needed.

"As much as I think guidelines are the wrong way to go, the legal costs are assuming absurd proportions," he said.